Business credit demand picks up as lockdown ends

Equifax’s Quarterly Business Credit Demand Index for the December 2020 quarter has revealed that business credit demand has continued to decline year-on-year, but the rate of decline had eased in the December 2020 quarter amid signs of a bounceback in Victoria.

According to the data and analytics company, overall business credit applications had declined by 6.9 per cent in the December 2020 quarter compared with the December 2019 quarter, while business loan applications had slumped by 10.1 per cent, and trade credit applications had fallen by 8.4 per cent.

The reopening of Victoria in the December 2020 quarter after more than four months of the coronavirus pandemic lockdown (and before the government announced a snap five-day lockdown in February to contain another wave of COVID-19) had boosted business credit applications in Victoria by 12.0 per cent compared with the previous quarter.

NSW, Queensland, the Northern Territory, Tasmania, Western Australia and Queensland had also seen an uptick in applications, Equifax figures have shown.

However, compared with the December 2019 quarter, business credit applications had reduced in the December 2020 quarter in Victoria by 14.0 per cent, in NSW by 4.0 per cent and South Australia by 3.0 per cent.

On the other hand, there was growth in applications in the Northern Territory (3.0 per cent), Queensland and Western Australia (2.0 per cent), and Tasmania (1.0 per cent).

Meanwhile, business loan applications had remained low in all major commercial centres, but the rate of decline had softened, the research has revealed.

Applications in Victoria had increased by 7.0 per cent in December 2020 compared with the September quarter, closely followed by Queensland and Western Australia, where they increased by 5.0 per cent.

Compared with the December 2019 quarter, applications declined in most states in the December 2020 quarter, including Victoria (16 per cent), NSW (8 per cent), Tasmania (6 per cent), South Australia (3.0 per cent) and the ACT (1.0 per cent).

However, there was growth in the Northern Territory (7.0 per cent), Western Australia (3.0 per cent) and Queensland (2.0 per cent).

Asset finance has been a strong area of growth, with applications increasing by 0.2 per cent. It had strengthened in all states and territories in the December 2020 quarter, which Equifax has attributed to commercial demand from the construction industry.

Applications had increased by 9 per cent compared with the previous year, and jumped by 27 per cent compared with the September quarter, the figures have shown.

While asset finance applications in Victoria had decreased by 9 per cent compared with the same period last year, there had been a considerable rebound in the December 2020 quarter compared with the September 2020 quarter, with applications rising by 50 per cent, which Equifax said was well ahead of the other states.

Commenting on the findings, Equifax general manager, commercial and property services, Scott Mason, said: “While overall business credit demand remains down, it is encouraging to see that there are signs of a turnaround. The lifting of extended restrictions in Victoria has allowed for a rebound in business credit applications driven by asset finance.

Mr Mason flagged that company insolvency volumes would be a point of focus in the coming months as a “forewarning” of what could be awaiting the business sector.

“While insolvencies in November 2020 were 57 per cent lower than the previous year, there is the potential for a rise in bankruptcies as government stimulus and bank deferral packages come to an end,” he said.